7.2 Parties, Privity and Third-Party Rights

Once formation is satisfied, the next FLK question is who can sue and who can be sued. Privity of contract is the common-law rule that a person who is not a party cannot usually enforce the contract or be made liable under it. Practitioners still name the rule from Tweddle v Atkinson (the son-in-law could not sue on a promise made to his father, and consideration had not moved from him) and Dunlop Pneumatic Tyre Co v Selfridge (Dunlop could not enforce a resale-price promise against a party with whom it had no contract). Beswick v Beswick shows both the harshness and a procedural escape: the widow could not sue in her personal capacity as a third-party beneficiary, but as administratrix of her husband's estate she could obtain specific performance of the promise to pay her an annuity.

The September 2026 FLK1 specification splits this heading into privity of contract and rights of third parties. On a file you therefore ask two questions, in order: does the common-law rule bar this claimant; and if so, does the Contracts (Rights of Third Parties) Act 1999 (or another established exception) let them through?

Why privity still matters

Privity is not a museum piece. Most commercial files still start with who signed. A subcontractor who is not a party cannot usually sue the employer on the main contract. A purchaser of goods cannot usually sue a remote manufacturer in contract (tort and product statute may be different questions). A promise to confer a benefit on a named outsider does not, at common law, give that outsider a cause of action. The rule also protects strangers: they are not bound by burdens they never agreed to. Assignment can transfer the benefit of a contract, with notice, but not the burden. Trying to dump obligations onto a non-party is a different, and usually failing, analysis.

The consideration rule in Tweddle travels with privity: consideration must move from the promisee. Even if a contract is expressed to be for C's benefit, C cannot enforce it at common law if C is not a party and provided no consideration.

Picture a typical SQE1 construction file. Employer E contracts with main contractor M. The specification names Glassfix Ltd as nominated subcontractor and says E 'shall pay Glassfix £50,000 on practical completion'. Glassfix is not a signatory and gave E no consideration. At common law Glassfix is a stranger. Whether the 1999 Act changes that result is the statutory question below, not a reason to pretend Glassfix signed.

Established routes around privity other than the 1999 Act

FLK items still test the older tools, because parties often forget to use the 1999 Act, or they contract out of it, or the claim is a burden rather than a benefit.

• Agency. If A contracts as agent for a principal P, P may sue and be sued. Disclosed and undisclosed principal rules are commercial knowledge: an undisclosed principal can usually intervene if the agent had authority, unless the contract, on its terms, excludes that possibility.
• Assignment of the benefit. The assignee steps into the assignor's beneficial shoes, subject to equities. Burdens do not assign.
• Trust of a promise. If the promisee holds the benefit of the promise on trust for a third party, the third party can enforce in equity, joining the promisee if needed. Courts are slow to infer a trust merely because a contract mentions a third party.
• Collateral contract. A manufacturer who makes a promise to an end purchaser, who then contracts with a dealer, may be bound by a collateral contract: Shanklin Pier v Detel Products.
• Covenants concerning land. Restrictive covenants can bind successors in equity: Tulk v Moxhay. That is property law sitting next to privity, not a general contract exception.
• Himalaya clauses. A carefully drawn exclusion that extends protection to servants, agents, or subcontractors can be given effect through a unilateral-offer and agency analysis: Scruttons v Midland Silicones made the old common law awkward; New Zealand Shipping v AM Satterthwaite (The Eurymedon) is the name of the modern Himalaya solution.
• Specific performance at the promisee's suit. Beswick remains the reminder that the promisee, suing on the contract, may obtain an order that the promisor perform in favour of the third party.

None of these routes should be used to invent a claim the 1999 Act would not allow if the Act is clearly excluded, or to impose a burden on a non-party.

Contracts (Rights of Third Parties) Act 1999 — the s.1 gateway

Section 1 is the working test. A person who is not a party may in their own right enforce a term of the contract if:

• the contract expressly provides that they may (s.1(1)(a)); or
• the term purports to confer a benefit on them (s.1(1)(b)), unless on a proper construction the parties did not intend the term to be enforceable by the third party (s.1(2)).

The third party must be expressly identified in the contract by name, as a member of a class, or as answering a particular description, but need not be in existence when the contract is made (s.1(3)). Express identification is a frequent trap: a vague hope that someone will benefit is not enough; 'all subcontractors engaged on the works' or a named architect usually is.

If s.1 is satisfied, the third party has any remedy that would have been available if they had been a party (s.1(5)). They may also rely on an exclusion or limitation that the contract says is for their benefit (s.1(6)) — which is how many modern Himalaya-style clauses are now drafted, often together with an express s.1(1)(a) statement.

Section 1(2) is the construction safety valve. If the contract, read as a whole, shows that the parties meant the promisee alone to be able to sue — for example a clause saying no third party may enforce, or a structure that is only a promise to the employer to pay the subcontractor — the purported-benefit limb fails. Express contracting-out is routine in commercial standard forms. On an SQE1 item, look for that clause first.

The promisee's own rights remain (s.4). The third party's claim does not replace the promisee's. Section 5 prevents double recovery: sums the promisee has recovered for the third party's loss are brought into account.

Variation, defences, and the s.6 exclusions

Section 2 protects a third party whose right has crystallised. Where the third party has a s.1 right, the original parties may not, by agreement, rescind or vary the contract so as to extinguish or alter that right without the third party's consent if:

• the third party has communicated assent to the term to the promisor (assent may be by words or conduct, and should be received by the promisor); or
• the promisor is aware that the third party has relied on the term; or
• the promisor can reasonably be expected to have foreseen that reliance, and the third party has in fact relied.

Section 2(3) lets the original contract reserve a right to vary or cancel without the third party's consent. That reservation is a standard drafting point. If it is present, s.2 will not freeze the bargain.

Section 3 gives the promisor, as against the third party, any defence or set-off that would have been available if the third party had been a party, plus defences arising from the third party's own conduct. The third party does not take a better claim than the promisee had.

Section 6 keeps specified contracts outside the s.1 scheme. Functioning knowledge includes:

• bills of exchange, promissory notes, and other negotiable instruments (s.6(1));
• the company's constitution under what is now Companies Act 2006 s.33 (s.6(2)) — shareholder rights against the company still run in that special statutory contract, not via CRTPA;
• a contract of employment, as regards enforcement against an employee (s.6(3)) — a third party cannot use the Act to sue a worker on the employment contract;
• certain contracts for the carriage of goods, where other international regimes govern third-party position (s.6(5)).

Section 7 preserves other rights a third party may have apart from the Act (so agency, trusts, and collateral contracts survive) and makes clear that the Act does not impose duties on the third party.

On an exam file, work in this order: identify the parties to the putative contract; apply privity; ask whether s.1(1)(a) or (b) plus s.1(3) identification is satisfied; read for a s.1(2) contracting-out or contrary intention; check s.2 if the original parties later try to vary; apply s.3 defences; and only then reach for agency, assignment, trust, collateral contract, or Himalaya analysis. Do not let a sympathetic third party skip the statutory test.